Singapore — China's state-run China National Offshore Oil Corp., or CNOOC, began planning its roadmap for reaching its carbon emissions peak and to achieve carbon neutrality in a high-level meeting in end-January, in line with the central government's net zero carbon emissions plan by 2060.
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The initiative makes CNOOC the last of three Chinese national oil companies to kick-off its long-term plan to mitigate carbon emissions, as its two larger peers Petrochina and Sinopec have already made similar announcements in recent weeks.
The NOCs are yet to put together a firm plan, but similar moves have also been made in the power sector with generation utilities like China's State Power Investment Corp looking at emissions targets, indicating a coordinated push among state-owned corporations.
CNOOC's participation is key because it is the country's single-largest LNG importer and has the highest percentage of its portfolio located overseas out of all the three NOCs. It was also one of the first companies globally to import carbon-neutral LNG cargoes.
"The top-level design research and action plan preparation fully prepares the company to become a new force for green energy and low-carbon transformation and will help realize the goal of 'Carbon Peak and Carbon Neutrality,'" CNOOC said in a statement Jan. 29.
CNOOC Party Secretary and Chairman Wang Dongjin recommended that the company's carbon strategy should first look at stabilizing the oil and gas business, allowing it to consolidate the foundation for future transformation and development.
This will include implementing its current seven-year action plan for increasing domestic oil and gas reserves and production, speed up unconventional oil and gas output, accelerate the development of natural gas, and construct a full-fledged LNG supply chain.
This can then be followed by the development of new energy and new industries, development of offshore wind, and low-carbon transformation, he added.
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DECARBONIZING UPSTREAM & LNG
In November 2020, Goldman Sachs initiated coverage of China's NOCs with a buy rating on CNOOC, saying that while the Chinese NOCs lagged European big oil in diversification toward renewables, CNOOC's upstream Scope 1 & 2 carbon emissions were more than 30% below the median carbon intensity of the global oil majors.
Scope 1 emissions are defined as direct emissions from company-owned or controlled sources, and Scope 2 emissions are indirect emissions from sources like purchased energy or electricity bought from a utility. A third category of Scope 3 emissions are from indirect sources not controlled by a company.
Out of the three Chinese NOCs, CNOOC had stronger profitability and was best positioned to absorb the impact of higher carbon costs even when compared to the top international oil companies, the brokerage said.
As of 2019, 67% of CNOOC's net oil and gas production came from China, around 5% from Europe and 12% from North America, with a relatively higher portion from overseas compared to PetroChina and Sinopec, according to Goldman Sachs data.
Additionally, it said CNOOC had a lower production cost of $35/barrels of oil equivalent Brent-equivalent compared with PetroChina and Sinopec at about $55/boe, mainly due to more offshore operations where technology has made oil recovery more economical, while PetroChina and Sinopec mostly own onshore conventional oil fields.
CNOOC also has the largest number of LNG importing contracts among the NOCs, from projects such as Australia's North West Shelf and QCLNG, suppliers in Indonesia, Malaysia and Qatar, and portfolio players.
These characteristics of its upstream profile will factor heavily into its decarbonization plan, especially when carbon-intensive sectors are subjected to carbon taxes at a national level.
For instance, CNOOC was one of the first countries to import carbon neutral LNG. In June 2020, CNOOC Gas & Power Group signed an agreement with Shell Eastern Trading for delivery of its first two carbon neutral LNG cargoes to the Chinese mainland.
In September 2020, France's Total delivered its first shipment of carbon neutral LNG to CNOOC, from Ichthys LNG in Australia to the Dapeng terminal in China.
These cargoes were unique because they offset CO2 emissions for the whole life cycle of the LNG cargo including production, liquefaction, shipping, regasification, and end-use.
They have paved the way for long-term carbon neutral LNG contracts, and market sources indicated that discussions were already in progress, as heavy industries like power generation, heating, transportation, manufacturing, construction and steel come under increasing pressure to decarbonize their fuel supply chains, controlled by the likes of CNOOC, Sinopec and PetroChina.
China's decarbonization campaign may even be disruptive to the commodity markets over the next one to three years if it turns out to be a replay of the 2017-19 'war on air pollution', where energy-intensive sectors were subject to major cost hikes and administrative shutdowns, Citi Research said in its 2021 energy outlook.
Here is a list of CNOOC's main LNG assets -
Liquefaction Plants (Current/Planned)
LNG Receiving Terminals (Current/Planned)
*Indicates project operator
Note: List is not exhaustive
Sources: IGU, GIIGNL